4 Risks of Real Estate Crowdfunding Platforms
Crowdfunding platforms can offer access to different investment opportunities and as an investor, it’s always important to be aware of the risks associated with it.
Lilian Sifuma
Real estate has for the longest time been an investment option that many investors have been venturing into, considering its value for money. For one to be able to venture into this field, they require expertise and capital to be able to run, in the option for real estate crowd-funding platforms has been a great help to this course.
Crowdfunding platforms refer to online platforms that connect investors with real estate investment opportunities. They are usually a platform where individual investors can pull their resources together to invest in various projects.
The platforms will source investment opportunities, especially from developers, to raise capital, do investor registration, and manage the project.
However, these platforms usually also have risks when it comes to using them. They may include:
1. Performance for the asset
This aspect is a critical consideration in real estate crowd-funding investment. This is usually dependent on the occupancy rate, the rental income, appreciation of the property, property management, and natural disasters. If the mentions are not met, this can be a risk leading to slow performance of the asset, hence the loss occurrence.
2. Regulatory changes
Legal issues can be a major setback that can affect crowdfunding platforms and investment in real estate, which can cause risks to investors. To mitigate this, investors and platforms need to be
up to date with the evolving regulation and impact on investments.
Smaller investors might have a challenge when it comes to diversification; this may be as a result of limitations on investment options and asset availability.
3. Market Volatility
Market volatility refers to the fluctuation in the real estate market, which most of the time affects the value set for the property, income from the rent, and investment return. Crowdfunding platforms are always affected since it are based on performance. Market volatility is usually caused by the following factors: recessions, economic downturns, and changes in interest rates. Population growth can increase or decrease the value. Investors need to stay informed and do research to assess the potential impacts on their investments.
4. Platform Risk
Many platforms are susceptible to fraud, and this also applies to crowdfunding platforms. With poor management of the platforms, it can also pose a huge risk to the investors, who might end up losing their investment. As an investor, you need to do a thorough vetting of these platforms before making your investment.
Crowdfunding platforms can offer access to different investment opportunities and as an investor, it’s always important to be aware of the risks associated with it. Knowing the risks and benefits can help you make a concrete decision and navigate the real estate crowdfunding platforms.
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